Following an “in-depth” second phase examination, the Competition and Markets Authority (CMA) has given Tesco the green light to acquire wholesaler Booker.
The all-clear has been given by the authority on the basis that the £3.7bn merger does not, in its view, “raise competition concerns”.
Although Booker supplies shops operating under the Premier, Londis and Budgens brands, the CMA argued that Tesco as a retailer and Booker as a wholesaler “do not compete head-to-head in most of their activities”.
It said: “Booker does not own the shops it supplies and these retailers are free to set their prices and decide which products to stock. So, although these shops compete with Tesco, Booker cannot directly determine how they compete.”
The authority explained that, since it published its provisional findings, a group of independent panel members has examined all the submissions received – including evidence from a “large number” of wholesalers, suppliers and retailers – in order to reach its final verdict.
Potential price increases
The CMA said it also examined whether Tesco’s takeover of Booker “could raise prices or reduce service quality at either the wholesale or retail levels”.
It concluded that ”existing strong competition in wholesale and retail made this unlikely”.
The CMA said that of the hundreds of retailers it surveyed during the second phase of its investigation into the deal, “most shops use more than one wholesaler and frequently switch”.
“In addition, almost half of symbol group retailers surveyed and more than a third of independent retailers said that if Booker were to raise prices after the merger with Tesco, they might stop buying from Booker altogether.”
Booker buying power
The CMA also considered concerns that, after the merger, Booker would be able to use Tesco’s buying power to purchase groceries from suppliers at lower prices and that other wholesalers might not be able to compete.
This could lead to the wholesaler eventually raising its prices if the choice didn’t then exist to keep prices competitive.
However, it concluded that “the wholesale market would remain competitive in the longer term”, noting that Booker’s share of the UK grocery wholesaling market was not sufficient to justify these longer-term concerns.
An important investigation
Chair of the inquiry group Simon Polito described the investigation as “important”.
He said: “We have carefully listened to feedback from retailers and wholesalers who operate in what are highly competitive UK retail and wholesale sectors.
“Retailers have told us that they shop around for the best prices and service from their wholesaler, and we are confident that this will continue after Tesco buys Booker.
“This has been an important investigation for us. Millions of people use their local supermarket or convenience store to buy their groceries or essentials, so it is vital that they have enough choice to secure the best deal for them.
“Having examined the evidence in depth, we are satisfied this will remain the case following the merger.”
The CMA opened its phase 1 investigation into the merger in May this year. At the end of June, the companies requested a ‘fast track’ referral to the next stage of the investigation.
The outcome of the first phase of the probe was met with a mixed response. The merger was blasted by one of Tesco’s leading shareholders and ex-Asda boss Andy Clarke said he was “surprised” that the deal had been cleared.